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Extreme Early Retirement – Mainly a Myth Except for Hippies and Drifters

by Darwin on March 31, 2013

I was reading the other day about extreme early retirement (CNBC) where they profiled a few people who were retiring much younger than what you might consider even “early” retirement at 55 or so. In one case, it’s a 40 year-old retirement target – so sure, that counts as pretty extreme early retirement. But I’m not sure anyone wants to live his lifestyle! The case studies outlined how they set out to achieve complete retirement by an age where they’ll certainly be living much longer in retirement than years worked. The problem I have with people declaring that they’ve retired in an “extreme” fashion is that they’re either not really retired, or they’re relying on a spouse, which, well, isn’t really the same thing. Millions of Americans, including my wife, could make that claim.

Here are some of the things that struck me from this article as well as general claims of extreme early retirement:

Math Challenged – Before getting into actual concepts and critiques about early retirement in general, I couldn’t help but point out the “extreme math challenged” nature of the subject of the article and/or the author. The article claims a 30 year old has $100,000 in the bank now and plans to have $400,000 by 35. The thing is, he makes only $50,000 and claims to save 60% of his income. Assuming he pays no taxes and saves this 60% on his pre-tax income, that’s saving $30,000 per year; x 5 years = $150,000. Adding that to his existing $100,000 is a total of $250,000. How does he plan to have $400,000 in the bank by 35? I guess details don’t matter when you’re writing for USAToday and publishing at CNBC. Now, for some actual meat…

Life as a Broke Hippie. Is It Even Worth Living on $15,000 a Year Just to Avoid Working? – So, using the subject above, he claims he lives on $15,000 per year. First off, that’s the extreme poverty we hear so much about that has Obama looking to arbitrarily raise the minimum wage (horrible idea). But more importantly, who the hell would choose to live in poverty for life voluntarily just so they don’t have to work? So, from age 40 onward, while you may not have to show up at work, what are you going to do with your life? You can’t travel. You can’t really pay for anything other than crappy food, crappy shelter and crappy clothes. And you’re supposed to do that for the next 40 years? Is that really a life to aspire to?

Working Spouse? Doesn’t Count – Per above, take my wife for instance. She’s home with the kids. She doesn’t go around telling people she did so well professionally and saved so much money that she’s “retired”. I just happen to be providing enough income for her to not be working. If it’s a male professional who quits their job and their wife’s still working, kinda the same thing, not sure why we’d draw distinctions based on gender. But I tend to hear many more males (with working wives) claiming they’ve achieved extreme early retirement than vice versa. In my mind, if you’re living off your spouse’s income, you didn’t retire. They’re just working.

4% Withdrawal Assumption – People like to use the 4% retirement assumption to see how much they have to save in order to live off their principal. Here’s the problem – that is wrought with assumptions – and if any of those assumptions don’t come to fruition, you’re screwed. Consider this – if you put away your nest egg in 1990 versus 2001, you’ve have vastly different outcomes. Starting just before a bull market, you’re golden. Starting into a bear market and you’re screwed when your entire portfolio drops 50% in a year. When you’re withdrawing 4% on half your initial nest egg that just lost half its value, you’re now withdrawing 8% a year. And that assumes it recovers! What if you enter right at the start of the next lost decade? Next, it assumes inflation is low and that your personal inflation doesn’t increase (which it does as you age, especially with health care costs skyrocketing). So, I don’t like to rely on the 4% withdrawal assumption in a vacuum and when these “extreme early retirees” do, you can bank on them looking for work in the future.

You’re WAY Healthier in Your 40s than Your 70s – On that health care topic, young people think they’re invincible. That’s why they don’t think they need health insurance (see our healthcare premiums over the years), think they can kick anyone’s ass in the bar and think they won’t get caught drunk driving. It takes a decade or two of getting knocked out, getting sick and seeing your friends racking up DWIs before you realize you’re just like everyone else. So, realize you’ll get sicker and sicker as you age. Meds, chronic disease, hip replacements, walkers. It’s all downhill after 40. So, when a 30-something uses their current zero cost health care budget and projects that same budget for the rest of their lives, they demonstrate their naivety It’s going to be a hell of a lot of money to live in the future with no income and stay healthy. And by the way, on $15,000, you’re not eating organic. Plan for diabetes, cancer and more.

Working is About More than Money – Social, Sense of Purpose, Parenting and More – For all the early retirees that abhor work so much, perhaps they haven’t considered what they’re missing. Aside from, well, a predictable income, work provides a sense of purpose and accomplishment. I hear stories all the time about people hitting their 50s and 60s and when they retire, they just sit around the house and sleep all day. That’s called Depression, they just don’t know it or admit it. There are strong social bonds formed when working and people do derive satisfaction from their professional experiences if they’re in a job they don’t hate. And what about parenting? I’m trying to teach my kids that they need to work hard and do well in school to have what we have someday. They’re not going to learn that by watching me sit on a hammock in the yard from the time they’re old enough to see their friends’ parents working.

Blogging is a Job. You’re Not Retired – Don’t get me wrong, I love to see stories of bloggers that are able to quit their W-2 day jobs and live off what they make blogging. Companies are trying like hell to fire all the workers they can anyway (seriously, here’s a common trick they pull and you’ll soon be replaced) so congrats to those who beat their employers to it. But when they say they’ve “retired” while toiling away for 25-60 hours a week blogging, creating products, chasing advertiser revenue and making money online, that’s not true. They’re just earning money working as a blogger instead of working as whatever they were doing in corporate America. They’re still working after all. They even have the added stress of having to worry about getting hacked.To me, retirement means you’ve earned enough income that you don’t need to earn any more to support your desired lifestyle. That means through combination of fixed income from pensions, SS, otherwise plus distributions from your investments, that’s it. No side hustle income.

I think it depends on how honest they are with themselves about whether they’re working or not in their “retirement”. Income isn’t really the issue, but rather, let’s say that source of side income doesn’t work out – would they have to go back to work? If so, they didn’t really retire right?

Perhaps. If someone can live off $15K a year, who are we to judge? I understand what you are saying about “hippies and drifters,” but what’s the big deal?

Why do you think the early retirement community gets attacked so much by those who have to work for a living? Is it a case of not being able to achieve what others have, therefore the only way is to try and bring others down?

The “big deal” is it’s nonsense. It’s not a retirement 99% of Americans would aspire to and you can derive that same income from basically living off the public teet like millions of Americans are doing (unemployment, disability fraud, etc.). It’s too easy. So, to have that as your plan – to be equivalent to people are basically living on social welfare programs? That’s not really something to brag about. Plus, for the reasons I cited above, they’re not gonna make it long-term – inflation, healthcare costs, etc. Finally, I hope none of them have kids.

Who’s “attacking”. Just callin’ it like I see it. Do you consider yourself to be retired? You’re still working, writing, promoting products, networking, etc., no?

I know, it’s Sam’s passive-aggressive commentary at work here, so be clear, I am certainly not jealous of someone living on $15,000 a year or yourself for that matter. I actually like my job, like being a married guy with kids and a somewhat higher cost lifestyle to sustain than a single guy wo a family to support. I don’t mind having to work for W-2 income to support them and then earning a few extra bucks on the side. I’m just questioning what’s legit “retirement” versus simply changing careers or going to self-employed status. Frankly, the inspiration for the post was the recent CNBC article which was chock-full-of errors and silly anecdotes.

Now that I think of it, didn’t you write an article last year criticizing the same population? Seem to recall you actually singling out individual bloggers and their stories…

From the CNBC article linked: “While some might think that avoiding a luxurious lifestyle is a sacrifice, to many, trying to avoid the work-to-65 routine is what makes life interesting.”

As I fall on the Financial Independence (I won’t call it “retirement”) side, I feel that this really is the basis of the difference. My main complaint going the other way is that so many people spend a lot more money and then whine about it. I feel people should at least own up to the choices they make.

“I actually like my job, like being a married guy with kids and a somewhat higher cost lifestyle to sustain” – then that’s great! I personally would value more time spent with my own kids, but it’s your decision to make.

“you can derive that same income from basically living off the public teet like millions of Americans are doing (unemployment, disability fraud, etc.). It’s too easy. So, to have that as your plan – to be equivalent to people are basically living on social welfare programs?”

But the thing is that they’re not. Why are you complaining about the errors in a cherry-picked case of someone who can’t face his own numbers towards “early retirement” when you yourself are throwing around accusations of mooching? It just so happens that according to the rules in our society, those people have paid for what they feel like they want to consume, just as you continue to pay for what you feel you want to consume. I think we should all just let people make their own decisions and move along (assuming they also have to deal with the consequences).

“let’s say that source of side income doesn’t work out – would they have to go back to work?” – let’s say your bond savings when you’re 70 get pwnd by inflation, and you have to go back to work. Did you really retire?

“I hope none of them have kids.” – to quote someone else: “giving your TIME to your kids is actually worth putting some effort into. And keeping your time is the opposite of spending your money … Do your kids really care whether they ride around in a thirty thousand dollar car instead of a five thousand dollar one? Is that worth saying goodbye to mommy for an extra year of their childhood?”

I am 49 and plan to retire this year. I will be truly retired in the sense that I will not be working for wages and will not consult or contract out my time, nor do I own a business or any rental property. I will be managing my own assets, however, because I distrust money managers, so I may not meet the strictest definition of retirement. I also plan to do my own shopping, cooking, and cleaning, so if this makes me “self-employed”, well then I guess I’m not really retiring after all. I have accumulated enough to support myself, but not a retinue of servants.

You brought up health, and it was a cancer scare that made me realize the value of my remaining time. I now believe that living well requires a certain balance between money and time– good health years. Once you earn enough money, I think it’s not a good idea to sacrifice time trying to gain more. That’s a pursuit that knows no end. Perhaps you are convinced that work and more money can only benefit health, but my experience is that they can damage health in some cases. The concepts of job stress, sleep deprivation, and difficult co-workers should be familiar to many. I admit I will miss the free international travel, company car, and expense accounts, but I don’t believe they help my physical or mental condition.

I don’t see why living on 15K per year is such a big deal. Admittedly it’s hard to keep up with the Joneses at this level, but some of us are perfectly happy ignoring them. Would you give up your freedom in order just to satisfy the expectations of those around you?

You sound retired! score! So, managing a portfolio is something many people do on the side for life anyway; I suppose as long as you know you never have to go back to W-2 income or start a business on the side, you’re truly there – congrats!

I’ll never retire, either. I’ll have to work for a few decades after I’m dead just to pay the bills. But that’s OK, because as soon as I die, I stop incurring all these inconvenient costs of living, so I can catch up with my debt even faster.

I achieved financial independence (not retirement) when I was 38 years old. My income property was generating enough income for me to be independent. My independence allowed me to build some additional businesses. I cannot or would not want to live a minimalist lifestyle. Despite that statement, I do not think I live an expensive lifestyle. When I actually stop teaching (retire), I expect to live a modest lifestyle similar to the last 40+ years. A life that allows choices and travel,

Being able to travel and share experiences and wealth with my family in retirement is part of my aspiration as well. I wouldn’t trade retiring now to live poor for simply working like I always planned.

I did a phone interview with this guy, but I guess my interview wasn’t interesting enough to get in the paper. Oh well.
Your definition of retirement is the traditional one and it sounds very boring. Who wants to sit around the house and sleep all day?

You had me falling off my chair laughing with your young people rant, mainly because it’s so true. I personally don’t believe in retirement and I believe those 20-40 year olds who claim retirement are nothing but media/marketing scams. Very few people can “retire” at such a young age but as you point out they are still working in some capacity.

Sam,
Ran out of room in the thread, so here are the replies to your comment earlier:

“But how do you know 99% of early retirees won’t make it? Perhaps they have different expense structures and like different thing than you.” –> I didn’t say 99% won’t make it; but rather, 99% would not aspire to a “retirement” subsisting on an income below the poverty level. They’d sooner continue working or would have saved more before retiring.

“We need you to work for as long as possible to pay as much taxes as possible to support our country. No everybody can be retired early, otherwise, our infrastructure would decline.” –> I could get sarcastic here and cite all the crap we pay for with our tax dollars, but we’ve gone through that. People need to work bc they need the money, they’re not altruistically looking to support the half the country that pays no federal income taxes, the millions on SNAP, committing disability fraud and the like…

A fine article you have highlighted! It is full of real life math that shows how starting a business is harder than one thinks. It’s not an early retirement article or is it a rant. Hopefully my article helps folks make better decisions before taking a leap of faith. Your article is basically bashing early retirees. Hope you see the difference.

Why do you think so many non retirees care about what early retirees do or how they get there? This is the real question.

Dude, in your article, you totally called people out individually and trashed their finances, their decisions and the success they project outwardly – in your typical fashion, but it’s obvious in reading the article what your intent was. Hello pot, meet kettle? And then you say I’m bashing early retirees here? As I explained ad nausea, I am questioning the definition for some (serious question Sam – should my wife be blogging about how she achieved early retirement? Because she’s not working any more? That would be utterly silly because I am financially supporting the household – so how is it any different when a male blogger is able to quit while their wife still works??), and whether the choice by others – to live below the poverty line, is something many people would aspire to. I wonder about you sometimes, I really do…

Besides this question above, I just wanted to let you know that Mike (TFB), Baker, and Erica who I highlighted in my “Quit Your Job And Die Alone” article all gave it a thumbs up and shared the article with their followers. They agree with the message about the risks of quitting a job and the hardships of building a business with all the expenses and hurdles in place.

Since the article, Mike has focused on operating profits, Baker quit blogging to pursue film making, and Erica also reduced her time on infopreneur stuff and built a business. The focus of the article again is not about early retirement as you think, but about looking before you leap.

Here you go again with the repetitive questions that have already been answered. Why are you calling a community “early retirement” when they’re not really retired or they’re living off a spouse? That’s a legitimate question, not an attack.

Do I “have to work for a living”? Of course not! I could be just like the hippie living off $15K a year. Or I could have my wife go back and support us on $50K a year as a teacher while I hang out in pajamas. But that’s not the life we choose. I choose to work for a living in a higher paying job so we can have a better life. It’s a choice. A legitimate exercise is to question other people’s claims and choices when they have blogs dedicated to it, no? Just like your article. Strange how you can never see the hypocrisy of criticizing others for what you’re already doing.

Sure Sam, coming from the guy who always blogs about your country clubs, real estate and sports cars. You’re so far off the deep end, I can’t continue this debate. I never claimed my life is any better than anyone else’s. Since you have such trouble with comprehension, I’ll just direct you back to my prior comments rather than reiterating the same point for the 11th time.

To your second question, I never said your article wasn’t good. I enjoyed it in fact – it was eye-opening and thoroughly researched. What I said was that it was critical of self-proclaimed early retired/entrepreneurs. It made them looked like smacked asses frankly in the condescending and sarcastic way in which your portrayed the difference between the success they portray and reality. In your typical sarcastic fashion, you mocked Erica’s inability to buy a house after selling a business and touting her millionaire status and you mocked the others in similar fashion. We both know this was your intent, yet you claim you “helped them”. That’s just silly. We both know the number of comments is not necessarily an indication of whether an article has merit. One of my most commented articles, and clearly not my best (which you were critical of as well) was mocking Communications majors. Would that make it a great article because it had a lot of comments? No, to the contrary, it was not my best moment. Yet it garnered a lot of comments because it was controversial. So, again, I think we both know there’s little correlation with article quality and comments, so not sure why you ask.

Let’s both get back to writing some content rather than further this fruitless debate.

Hmm, very helpful feedback. Do you mind highlighting when was the last time I wrote about country clubs and sports cars considering I don’t have either? I do love real estate though. Check out my latest post between stocks vs real estate!

Oh this is becoming so stale and such a waste of time. But if you want to be called out further, sure, here are some in a nutshell:

http://www.financialsamurai.com/2012/04/16/achieve-financial-freedom-slice/
Here you lay out your passive income and doing some basic math, if you’re claiming $6500/mo ($78000 annual) in passive income and say, a 5% return across all assets, base nut is about a million bucks. Add in other assets that aren’t producing monthly income outside a taxable account like 401k/growth stocks, etc. and you’d be well into millionaire status; very easy to discern from your post. So, not sure how you explain that.

Great finds and thanks for highlighting! Not exactly “always blogging about country clubs and sports cars” given the articles are from 1, 2 and 4 years ago on different subjects, but these are fun articles for everyone to read as I continue on my journey.

wow – y’all got it really hard on Sam. Sure, I’ll call him out on some things like refusing to recognize weight loss involves personal effort just like making money, but on the whole IMO he does play devil’s advocate more fairly and in a more interesting matter than most =P

I’d like to refrain from personal commentary on anyone’s life. I’d simply like to make the following comment:

I think some people use the words “retirement” and “financial independence” interchangeably, while others believe those two words have different meanings. And while PF bloggers may disagree about the value of “early retirement,” I think that we can all agree that “financial independence” is a great thing to strive towards.

Once you’re financially independent, you can choose to continue working if you so desire — but you’ve mitigated the risk of personal financial devastation in the event that you can no longer work.

Losing your job, getting diagnosed with cancer or needing to take care of a sick family member won’t financially destroy you.

So — let’s refocus the conversation on financial independence. To me, that’s the true definition of “wealth.”

I have commented on this subject on several blogs. I’m completely on Mr. Darwins side here. I feel the frustration in his words. It seems whenever one offers a logical explanation or asks someone to back up their statements with some facts, the reply usually dances around the real issue.

Not to pick on any one person here as well, but one of your respondent’s also has his better half also work for family medical benefit coverage under their better half’s work medical plan. (just adding to what was already responded to above). When you tally everything up together it becomes very disengenuous to say your “retired”.
(partners income, investment income, rental income, benefits, blog income from advertisements, linking to other blogs for the sole purpose of getting the traffic numbers to get paid more for your blog. It’s all an alternative form of work)

I had a young lady ask me to sell my house and be a sort of Kato Kaelin type person to her. She makes good money, I would simply have to do her household repairs, fix her car, be like a stay at home fix it guy for her with “benefits”. If we had a kid together I would be Mr. Mom. In most “Retire by X” people minds that should qualify as me being instantly retired. I disagree. I have just switched the traditional role of husband/wife to wife/husband.

Is it because people just don’t get it or are they worried that if they agreed in principle, traffic to their blogs would die off because their blog name would make no sense anymore. Maybe the contraversy is what bring’s the traffic and it’s by design?

The problem is a language problem, which is why I choose to use the term “pretired” vs. “retired.” The word “retired” has so much baggage that many feel if you use that word to describe your approach to opting out of corporate hell then you’re just a liar (to yourself and others).
To me, living in a van down by the river bragging about how I don’t have to work isn’t my vision of retirement, but who am I to judge? What, really, is the material difference between that and living in a paid-for house on $24,000/year investment income even if you rely on your spouse’s health insurance? Or even if you need some part-time work to make up the difference in your monthly costs?
The point, which I think this article completely misses, is that it’s not about wearing white pants and never doing anything again (a misperception based on the loaded word “retirement), but is actually about the freedom of not having anyone own you. If you can reach that level of freedom, which is relatively easy by cutting personal spending, then who cares if you want to pursue other moneymaking interests? Call yourself whatever you want, but the point isn’t sitting on your butt all day, it’s freedom.

I think the first person profiled in the article is the blogger behind dividendmantra.com.
He’s far from math-challenged – I suspect there’s an error in the article since he has always clearly stated on his blog that he expects to meet his goal by 40, not 35.
He sounds pretty happy with his life and spending. My choice would be and is to spend more, but more power to him if he’s happy living a more ascetic life.

Find something you would love to do even if you were a billionaire, and do that for your “work.” Minimize the parts of the job that you don’t love and maximize the parts you do. Tap dance to work every day!

To be honest, retirement isn’t something to aspire to unless you find your work not meaningful or enjoyable. Many people do have that attitude, but it just means they haven’t found a career they love.

Unfortunately, that kind of job probably wouldn’t pay the bills for me. but if you have no kids, no wife, and don’t care about money much? Doing meaningful work you enjoy certainly has its benefits – both mental and physical.

I just did the calculations by hand. If a person has $100k the day they turn 30, and if they earn 10% a year (and contribute $30K each year), they can have about $408,000 while they are still 35 years old (before their 36th birthday). Maybe 10% is not considered reasonable, but they will also probably have raises each year. Compound interest works wonders that way.

I think it’s great if people work IF they enjoy it and IF they aren’t living paycheck to paycheck (how stressful!). However, my husband and I love to hike, bike, back country ski, rock climb, travel, etc. We wanted to have financial independence early on so that we could take more than 2-4 weeks vacation a year. We easily keep our expenses below 40k (we have paid off our house and cars.) We don’t buy lots of “stuff” (netflix, smartphones, ipads, dinners out, new cars, Starbucks, etc) that our friends seem to enjoy. We will be “retired” in our 40’s and I’m okay if I never have to answer to a boss or time clock again…I’d rather be camping under the stars or enjoying quality time with my family.

10% per year? That’d be nice. If you graduated around the time of the tech bubble, like we did, you’d know that this hasn’t happened over the last 12 years. Stocks have JUST NOW caught up to where they were in 2001, if you account for inflation.

Of course if you take dividends reinvested into account it was actually a pretty good decade. Maybe not 10% but not as bad as you suggest. And anyone that had money in the market during the tech bubble was asking for poor results. Companies were way overvalued to the point where only morons were still fully invested.

If you take dividends reinvested into account it was actually WASN’T a pretty good decade, and unsure of the basis for that claim. 2.5% annualized return from Jan 2000 through Mar 2013. 0% if you adjust for inflation. You can check it out yourself, for any period on the S&P 500, here.

OK agreed. If you owned the entire stock market when it was extremely overvalued back in 2001 then your returns from that starting point weren’t the greatest. Most rational investors would not have been putting new money in the market at that time though.

Also, what would you suggest investing in instead? You want to villify investing in the stock market but I don’t hear any alternative ideas.

I don’t “vilify” it. I think you’re being unrealistic in your expectation of returns.

What will I do? ETFs are my first choice. I’ll play a bit with certain stocks, but I’ll honestly be surprised if my dividend portfolio or my value portfolio ACTUALLY do better than the overall stock market over the long haul because the odds are very much against it.

Sorry I believe I misunderstood you then. If your main concern is the expectation of returns then I would agree with you. Personally when doing my own investing I look for a more reasonable 7% return in my projections. This may or may not come to fruition but either way I will adapt and continue forward.

You can pull more than 4% some of the time, but some of the time, you’d still have to pull less than 4% or you’ll hurt your ability to bounce back after you get crushed by a down cycle. $400k would yield $16k a year or a bit more in good years (with adjustment for inflation, of course), but in bad years, you should really only pull half that without cutting so hard into your principal that you end up not being able to recover during the upswing. Surviving on $8k is doable…but not if you have medical expenses.

Yeah, your high-deductible plan is great now, at your current age, but 1) it’s not going to exist in two years, and 2) your healthcare costs are going to be WAY higher as you age, almost certainly. The CHEAPEST plans that are acceptable under the ACA are running about $250 per month for individuals as “high deductible” plans because of all the coverage you’re required to have. The cheapest high-deductible plans currently in existence are under $100 a month, but none of those will qualify. If you’re bringing in $16k a year, that $2,100 a year extra is a big expense…which will only grow over time as your basic insurance rates go up with age.

You could try just paying the fine for not having care under the ACA and then go on public assistance when you have a problem–but you will be required to burn though your savings before you qualify for Medicaid. Then where are you?

BTW, if both my husband and I were self-employed, our current medical plan for our family would be $14,500 per year. The super-Cadillac plan his company offers would cost $20,000 per year.

One point on the “4% withdrawal rule” noted in the CNBC article, and discussed in the blogpost above. A recent whitepaper published by Morningstar updates the analysis (which was originally done by William Bengen in 1994 and involved 75 years of S&P 500 performance history). The new number is 2.8%. You can check it out here, and please pass it along. Especially to those who might be counting on a 4% number.

I was the one profiled in the USA Today article. All my financial information is public. That’s on purpose so as to highlight that it’s possible to retire early/become financially independent at a young age on a middle class salary. This public information is more than I can say for you, as I’ve been bouncing around the blog a bit here and I see you aren’t as brave.

Let me go ahead and squash this real quick…

1. Your math challenge forgets something incredibly important: compound interest and investments. I don’t have my money sitting underneath my mattress as it seems you assume it to be. I have most of my wealth tied up in high quality equity positions with dividend growth stocks. Think JNJ, PEP, PM, KO and the like. I’ve gone from $5k to $100k in three years and the wealth snowball will only continue to roll downhill at a greater rate as my wealth grows. I may not make it to $400k by 35, but that’s not my goal. My goal is to retire by 40, and to do so I’d need to exceed my expenses (currently about $15k/yr) with a healthy margin of safety (say 10-20% or so). The whole ‘quit the 9-5 by 35’ tagline was USA Today. However, it’s not totally impossible for me to make it to $400k by 35 if I get a little boost in income at work. I’m only on pace to make about $56k or so this year.

2. I feel sorry for anyone who thinks that they have to actually spend $40k or more per year per person to be happy in life. Happiness is derived from experiences and relationships, not stuff. I plan to maximize the former while minimizing the latter. How? By actually owning my own time early in life rather than trading it away to an employer. It’s hard to cultivate relationships and build life experiences when you’re busy working all day everyday. But..but…but what about, like…vacations and stuff? I’ll have a 40 year vacation. You can have your 2 weeks per year. I live a very full life. I have a normal job, a normal apartment and a normal life. I just do so on a much smaller scale. For instance, I just took my girlfriend out to a local hotel on the beach for her birthday for a little ‘staycation’. It was a cheap little weekend trip that ended up costing very little money but still was huge on fun. It’s the little things in life.

3. I’m not married, and have on plans to ever be so. Furthermore, your quote “I just happen to be providing enough income for her to not be working.” tells me all I need to know. I don’t plan on subsidizing someone else’s finances, but if I were married and my wife stayed at home and paid her half of the bills from her own investment income I would definitely considered her retired. YOUR WIFE is not retired because she is subsidized by you. Are only single people considered retired when they have enough to cover all their expenses…or can a husband/wife not actually “retire” without the other one retiring too? I think you are using biases based on personal experiences because your wife apparently cannot afford to live completely independently from you without some sort of financial help. I’ll never require subsidies and I’ll never hand them out either. Oh, and that goes for public assistance too.

4. I don’t use the 4% withdrawal SWR. I don’t plan on selling any of my investments during my entire retirement. I plan on living off the dividend income/interest income and possibly even rental income (if I ever go long on RE). I use the passive income ONLY while the underlying assets continue to appreciate. And guess what? The dividends from most of my investments grow over time, typically well over the rate of inflation. So, I’ll be starting with $18k or so the first year…the next year it’ll be $19,200 and the following year it’ll be $21,000 and so on. Exponential growth that will likely outpace my ability to spend the money.

5. Thanks for making my point for me. You ARE way healthier in your 40’s than your 70’s. THAT’S EXACTLY why I want to retire so early in life. Why spend the healthy years of my life working my ass off when I could be enjoying my life? Nah…I’ll just work for 40 years and HOPE that I’m healthy enough to actually enjoy the fruits of my labor. We’re not promised tomorrow. I’d rather own my time now. It’s all downhill after 30? Sure, for the guy chained to his office desk, having to meet deadlines for an overbearing set of bosses, constantly looking at quotas and working far more than a healthy amount. These people usually have ever-expanding waistlines because they don’t have the time to eat healthy and they’re constantly stressed out. Guess what isn’t stressful? Waking up when I feel like it and strolling down to the library for a good book. Oh, and that’s free too! Healthcare costs are figured in. I’m actually awaiting confirmation for my shiny, brand-new HDHP through Aetna. A little over $50 for my monthly premium.

6. Work is about purpose? I don’t agree with that at all. LIFE IS ABOUT PURPOSE. What you CHOOSE to do with your life is then up to you, and if that’s exchanging your time for monetary resources for something you find a great deal of pride/purpose in is up to you, and perfectly fine. But, if you’re financially independent you can choose to do so. Also, someone who retires can always go back to work. That’s the beauty in being financially able to retire at such a young age. You can take 5 years off and travel around (cheaply – SE Asia, South America and the like), spend time cultivating your hobbies (reading, writing, painting, philosophy) or just sit on the beach for a while and catch your breath from almost 20 years of non-stop work. If you want to then go back to work, you can. Yes, at that point you’re no longer retired or whatever. But, it’s not really about labels and fitting Darwin’s Money’s label on what it means to be retired or whatever. It’s about living your life in a way that most benefits and befits you, and in a way that maximizes your happiness. If that’s working, cool. If not, cool. Choice and flexibility, above all else, are huge benefits of financial independence. Your work pisses you off to the point you want to quit? See ya! I don’t need a job anymore. It’s like that.

7. I would agree blogging is a job. I don’t calculate my extremely meager blogging income at all in my financial independence/early retirement numbers. Any blogging income is icing on the cake, and I consider blogging a part-time hobby/job that just so happens to throw a couple bucks my way. I write to inspire others, not to earn an income. I agree that others that use blogging as a bridge between their investment income and expenses are not truly retired. I plan on retiring early on 100% of my passive income.

Hope that clears things up for any readers of this blog out there. And if you want to see how it’s REALLY done, come by and say hi!

Thanks for the comment dividend mantra. To address some of your points:
“This public information is more than I can say for you, as I’ve been bouncing around the blog a bit here and I see you aren’t as brave.” –> How brave are you? Seriously, the most controversial thing you’ve ever written about is how to save a nickel and what you’re investing in? I’ve had my life and my family threatened. I’ve had lawyers chasing me, had people try all sorts of tactics to take me down. Have you ever taken on an MLM? Those people are F’in nuts. When you’re anonymous, you can be more risky and say what you want without worrying about what the neighbors think, what your friends and family think, what your employer thinks. So who’s brave? Leave a link for something brave you’ve written, would love to read it.

1. What is your actual annualized return? Include dividends. You also forget stocks (including dividend achievers, etc) don’t just go up. Your entire portfolio could be worth 50% of current value in a year. This is not a stretch and you’d surely have to agree. When this happens and you’re 45 with no job, that’s gonna suck.

2. Living frugally is fine if that’s your thing. Many people are perfectly happy living that way and frankly, many affluent people are miserable, vacations and all.

3. Congrats on your future very lonely life. Never going to marry? Never kids? Being 60, 70, 80 and beyond will be a blast. When people with real relationships are enjoying their families and partners, you’ll be celebrating your dividend portfolio? And you completely bastardized my point on my wife. It is insulting and naive to criticize a woman’s decision to take some time off to raise our kids instead of outsourcing it. We live a lifestyle that allows us to raise a family on a single income so she can take 10 years off while the kids are all still young. Who cares? That’s not “subsidizing” her. It’s no wonder you’ll never be married. My point about spousal support is that there are plenty of bloggers (some of whom commented here and then subsequently wrote passive aggressive posts about “haters” [i.e. truthers that point out and call bullshit]) that are being supported by their wives with full-time jobs while they claim they’re “retired”. That just seems disingenuous to me. At least you’re single, so you’re using the definition appropriately if you pull it off.

4. You assume so much in this paragraph. You assume not only that the companies you’re holding continue to increase dividend payouts at a rate exceeding inflation, but also, that they pause or cease paying dividends altogether like hundreds of companies did during the most recent crash (which will happen again, every 5-10 years like clockwork). Not only that, but speaking of inflation, you don’t think we could see very high inflation here in the future? We’re setting ourselves up pretty well. And food inflation, healthcare inflation, and well, most of the others stuff you’ll buy in the future is rising a heck of a lot faster than the contrived CPI. Just because flatscreens are cheaper than they were a year ago doesn’t mean the average American’s food bill isn’t increasing. Finally, tax rates. You know this administration is all about confiscation and now they’re going after high value retirement accounts, trying to raise tax rates on all income (including dividends and cap gains, carried interest, etc) and whoever comes in next could be even worse. After all, we’re really turning into a nation of takers and the next vote will probably shift the needle even further toward redistributionism. So, you should probably plan on higher tax rates on your dividend income you plan on retiring on.

5. If you’re paying $50 a month for health insurance, it probably doesn’t cover much. Avoid work all you want, but if you get cancer, have a cardiac event, are genetically predisposed to any of the hundreds of maladies that require chronic care, you’re going to be eating through a heck of a lot more than $600 to cover healthcare costs. Young people always think they’re invincible and say “it’s not me”. Just look at the numbers and people you know. Shit happens. Healthcare is growing at an absurd rate and once the herd comes into the system under Obamacare, it’s going to be a nightmare. I’d plan on much higher costs there, especially as you age – when you don’t have any W-2 income or company-sponsored health insurance.

6. You just kinda described the life of a drifter. title of my post.

7. Something else we agree on.

In closing, there are tons of the dividend/passive income proponents out there that think the notion of dividends, compound interest, etc. somehow defies the laws of economics and reasonable expectations of investment returns. If it were that easy, there would be mutual funds, ETFs and professional money managers all earning the double-digit annualized returns people claim. The reality is, many high yield stocks crash harder during a crash, many companies paying above-market dividend payout rates don’t appreciate as much in stock price during a bull market, and when you look at the total annualized returns of a dividend portfolio versus a growth portfolio vs simply holding SPY, over a long period of time (decades or longer), the difference is negligible. Just because you’re earning dividends doesn’t mean your total return is any better than the rest of us.

I posted on your site a few times, most times i agree with you. The argument of who and who is not retied and how it’s “envisioned” just seems to be different for everyone. I think the word retirement needs to have a revised definition or added definitions to include all the people that don’t immediately have an old couple dressed in white sailing on a boat come to mind. You, Nelson, myself, others above will never win the “Retire by “X” with benefits” argument.

Most of us that come to a site like yours or DM’s above are looking to get some ideas on trying to improve or better our financial “house”. When that is the topic, it’s like “hey thanks, that’s a great idea” and everyone leaves happy. However once this subject comes up all of a sudden everyone thinks the other person is a dick. The knives come out. I’m guilty of it as well. I think it’s best we all give up defining retirement.

Secondly, I really take exception to part of your third point (first few lines only, the rest is fine). (Think George Clooney) Married or not one can live a very fufilling life. Some people live truly in complete misery, married for their whole lives. Or 50 % of people divorcing and that can devestate many lives for many years after. You obviously have a good marriage but it does not give you the right to make that comment about others that choose not to. If you have an open mind you can always meet someone that can enrich your life at any age and vice versa. Being married and raising a family does not ensure anyone is a better person or less lonely or better off in any way then a single. You just both have different needs, wants & problems.

I’m no fan of personal insults, but if someone shows up and starts making ridiculous comments, ignores the comments back and then keeps diverting, etc., they need to be called out (not refering to divmantra here). As far as defining retirement, sure, there’s some room for interpretation there, but if you’re going to seek out media attention and tell your story, of course it will be open to scrutiny.

Regarding marriage, kids, etc., of course many people are much better off without. Not everyone is cut out to be a spouse or a parent. And if they have the introspection to realize that and admit it, great. They’ve saved others some pain. But if your primary reason is so you never have to “take care of” any one financially, live as a miser, etc., well, that’s just not an attitude I can relate to.

Extreme early retirement is always something I’ve found fascinating. Personally, I’ve never wanted to pursue it because, like you it is not a lifestyle I want to live. I want to be able to spend some of my money traveling, going to sporting events, eating out and having some fun. However, for those that choose to live a different life, who am I to judge?

I am familiar with the story you are referring to and the person you are talking about is not just putting his money aside in a bank account. He has a solid plan of investing in dividend growth stocks. He will be earning dividend income from his assets and most likely those assets will appreciate in value. I haven’t done the math, but knowing the referenced person, I’m sure he has and he knows the kind of stock market returns and dividend income he needs to earn to reach his goal.

Also, regarding the 4% withdrawal rule. Do some reading about the dividend growth investing strategy. Followers of this strategy don’t plan on selling off assets and withdrawing 4% from their accounts to live off of. The idea is to build up a solid portfolio of dividend stocks where you can live off of the dividend income paid out. You won’t have to sell your stocks and therefore the income will come indefinately.

It’s not a lifestyle I choose. I would have concerns like you about health care costs. I want to live a grander lifestyle and be able to afford some of the nicer things in life. However, if he can do it I say more power to him. I respect what he is trying to accomplish and wish him luck.

I remember when it was called “Value” investing.:-) Dividend stocks get whacked just like any other stocks, when the market craters 50% (2003) and again 57% (2007-09). The Financial sector in particular got hammered, stock prices went down and dividends were slashed. Still are. Not even close to paying what they were in 1999. Blue Chip dividend stocks/sectors like BofA, HP, Utilities, Mining, Telecom, no company/sector is immune. People are interested and excited at the moment because the market has doubled in four years; when it was hammered 57% people wouldn’t even turn on their computer or open their mail.

The thing with the 4% rule is it must increase to reflect inflation. Not really happening. Tough to deal with that reality if you have chosen that route and fine that the model busts in real-time stress-testing.

I agree that dividend stocks can go down in value and sometimes companies are forced to cut or eliminate dividends. However, currently there is a list of 306 companies that have been paying annually increasing dividends for at least the past 10 years in a row. If you have a portfolio made up of companies from this list the model didn’t go bust. Even during the great recession. Now most likely you would have had a few bank stocks in your portfolio. Dividend growth investors should be monitoring their portfolio. First sign of trouble to the dividend and a savvy investor would have sold his shares (hopefully before any significant losses) and put that money in a safer company. Yes during that time your portfolio would have lost value. But ideally your portfolio is made up of companies that continued to pay increasing amounts of dividend income to shareholders (and there were plenty of companies doing this).

You’re asking for this info for the NEXT 10 years and no I can’t give you a list. However, I believe if you build a diversified portfolio (say at least 20 companies) from these lists then you will find that the majority of them continue the streak for the next 10 years.

Also you have to do your due diligence. Not every one of these companies is a great company and some will falter. However, if you know how to research stocks and companies you should be able to pick out some winners. If you don’t, then I would suggest looking for some other strategy that you can understand.

You will definately be correct in that some of those companies won’t exist in 30 years. That is why you have to do your research and invest in the best companies. Then you monitor your investments and make sure you react in case a company falters. Sell before taking big losses and invest in another company. There are many great companies on that list. Companies like Coca-Cola, Procter & Gamble, Colgate Palmolive, Johnson & Johnson, Walgreens, etc that would be good choices. If you don’t know how to find good investments and you don’t want to learn then I don’t know what to tell you.

I have reasonable expectations for my investments and save accordingly. I’d never try to retire on $400k–not now, much less in 20 or more years.

I also don’t count on my future being the same as my present. I’ve known many people who “knew” they were never going to marry or have kids who discovered that they wanted both, after all, eventually.

You can’t take a snapshot of ANY market and assume that things are going to go that way for a long time. Some people in 2005 thought that they’d be able to make money forever just by trading up their houses every few years. Didn’t work out that way.

I do agree that past market performance doesn’t guarantee future results. And I agree that to me retiring at the age of 40 with a portfolio of $400,000 does have it’s risks. Personally I would not be comfortable doing it nor do I want that lifestyle. But if Dividend Mantra wants to try it I wish him the best of luck.

Every investment strategy has it’s risks. But the truth is we have to invest whether it be in individual stocks, ETF’s, real estate, gold bullion, small business or whatever. I also don’t count on my future being the same as my present. I like to prepare by living below my means, saving and investing for my future. Things can change and we have to be ready to adapt, change and continue on towards our future.

I think the “Adapt and change” is what gets me. I feel like he’s setting himself up for being in a position where adaptation is very, very difficult. If he goes ahead with his plan and does ok from years 40 to year 55 and then gets very sick….. What then? How can he adapt? He has no cushion. He’s already bare-bones. He can’t get a job–he’s been out of the workforce for 15 years, he has no marketable skills, and he’s sick. He can’t cut anywhere because there’s nowhere to cut. He’ll burn through his principal and then get stuck on SSI disability for his remaining life.

Flexibility is exactly what people need, and when you close so many doors, you can’t make that happen.

People complain all the time that Social Security doesn’t give people a wage they can live on. (I point to the word SUPPLEMENTAL versus PENSION, *ahem*) And then at the same time, they lionize people who are living on LESS than SS provides and plan to do so forever.

Now, I think it’s POSSIBLE. But it’s not anything I’d aspire to, personally. It’s the life of an extremely well funded “bum.” 🙂 You can have rootlessness and freedom and all the stuff, sure, but at a cost of lifestyle reductions that I don’t find palatable. I don’t see the point in quitting work just to quit work.

Worse, I foresee things happening in their future that force them back into work when they AREN’T young and healthy. That’s a scary future. Planning for bare-bones is very dangerous because things happen.

As far as the SAHDs…sorry, you are a stay at home dad! In fact, you’re a work at home dad, like I’m a work at home mom! You are not retired! I think the gender thing has people taking this kind of “retirement” seriously, and I like the guy at Retireby40, but dude….you’re a stay at home dad, NOT a retiree!

And all those who are “retired” but make $1000 or more a month blogging…again, not retired! It’s called being self-employed, and it’s great, but it’s not retirement.

Very simple question for the passive income/dividend believers. If it’s so simply to just pick dividend growth companies, reinvest dividends, etc., retire on the dividend streams, why are there no funds/ETFs returning massive annualized returns? It’s a pipe dream.

People think dividend grow on trees. This is cash disbursed by the company that could have been used for higher ROI investments/acquisitions, buybacks, etc. I’m not against dividends at all. But if you’re paying a dividend just to pay a dividend, regardless of the business cycle and cash flows, you’re not actually acting in the best long-term interest of shareholders – it’s a gimmick.

How many companies had paid an increasing dividend every year for decades and then stopped paying during the last crash? Many. Same cycle will repeat itself every 4-6 years.

Did you drink Coca-cola products during the last depression? Did you continue to shop at walmart too?

So did millions, even though they either worked, borrowed, or got free taxpayer money from their brothers and sisters to get those Coca-cola products to make them feel happy.

Thus Coca-cola has paid out dividends through The Great Depression, 2 World-wars, many depressions, and many growth cycles, all because of consumer’s believed “need” of their products and loyalty that these products will be there for them.

I find this article very unenlightened. Why are you judging people? If a person can be happy on $15,000, more power to them! You can’t and in a way that makes you weaker than them. Stop trying to pretend you’re smarter than people just because you don’t think the same way.

I live on less than $15k a year, and that includes paying $900/month for a 1,500 sqft rental.(more then enough for even 6 people, because my chinese neighbors do just that!) + a paid off 2010 Toyotta Corolla to drive to work. I have enough food from cooking at home or picnicing, and enough space to share with 3-5 more people!

Why follow orders from any man in your one and only life time?

Why dig a hole just to fill it back up again tomorrow for $/hr? Or for those cubicle office prisons, why shuffle papers from printers to other’s hands to trash cans or storage places for $/hr, with other’s intentions of using you to make more money for themselves?

If you ever went to college, you made the rules of your life and lifestyle. Your education demanded only 5 hours a day if you were efficient enough, and took loans or worked all summer long to cover living expenses, then you realized you were the closest you could ever be so far in your life to feeling financial independence, and the feeling of complete freedom (minus going to class, doing homework problems, and taking exams at night).

The Mexican fisherman is retired everyday with only fishing 3 hours a day, taking siesta with his wife, educating and playing with his many children, then pot lucking with the village bonfire on the beach every night for entertainment and family/friend/community sharing.

The American worker, works and spends and pays taxes his whole life, and only dreams of a Mexican Fisherman lifestyle, when he could go forth and chose to live that way and turn his retirement dreams into a reality, by letting go of unlimited wants and unlimited excuses.

Meditate on this, alone and away from all the brainwashing of spending and “duty” to work for you bosses whom you never see.

When’s the last time you took a vacation overseas? What are your plans if you become chronically ill? Building a nest egg over a lifetime and having a decent income certainly gives me great life experiences and helps prepare for trouble down the road.

You can easily fly somewhere every 6 months and live there for 6 months with probably cheaper rent. If you are chronically ill, then the doctors aren’t giving you an actual solution are they? Great examples to cure, not treat, chronic things are like chronic sleep deprivation. You get 12 hours of sleep for two days, then change your habits to sleep for 9 hours a day. Bingo, your “chronic” sleep deprivation has just solved itself. People refuse to think their bad habits (like sleeping 6 hours a night) are wrong and have no consequences, but they usually have dire consequences. Then they think money can cure them. It intentionally only treats them (so doctors can have a steady income stream for their practice.)